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Macmahon quits construction

Mining contractor Macmahon Holdings is pulling out of the construction business and tapping investors for $80.7 million as it tries to reverse a slide in earnings.

Macmahon on Wednesday outlined its new strategy to investors, saying it would become a dedicated full service mining contractor.

It has signed a $16.3 million deal with Leighton Holdings to take over the bulk of its construction projects, including equipment and staff.

It will also undertake a fully underwritten $80.7 million capital raising to strengthen its balance sheet after heavy writedowns on its construction business.

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The moves come after a major review of Macmahon's businesses and costs, which has led to the axing of up to 50 jobs.

Chief executive Ross Carroll said Macmahon had been forced to make substantial writedowns on its construction business, and as a result the group's net profit for 2012/13 would be between nil and $25 million.

Macmahon expects to be hit by one-off costs of about $10 million as a result of its restructuring, and redundancy and closure costs.

The latest earnings guidance comes after former chief executive Nick Bowen shocked investors in September with news that its profit for this financial year would be about half the $56.1 million reported in 2011/12.

Four weeks earlier, Macmahon had confidently predicted a 20 per cent rise in profit.

But Macmahon has suffered cost overruns at its Hope Downs 4 rail project in Western Australia and expects fewer contract wins amid worries that the nation's mining boom is coming to an end.

Mr Carroll said with the new strategy in place, Macmahon's mining business would deliver about $1.2 billion in revenue for 2012/13, increasing to around $1.4 billion in FY14.

The offloading of the construction business would also help reduce the volatility in Macmahon's earnings.

"This new focus will ensure we can further develop Macmahon's existing end-to-end mining service model and continue to build a diverse commodity, geographic and client base within the resources sector," he said in a statement.

"Mining already has a secured order book of $1.9 billion and, with expected contract extensions and the anticipated award of the Christmas Creek Mine expansion contract, this figure is expected to rise to above $4 billion."

Under the deal with Leighton, Macmahon will retain projects nearing completion as well as residual exposure to its share in the South Road Superway project and the Trangie Nevertire irrigation scheme.

Macmahon will retain about $40 million worth of equipment, which will be used in its mining business or sold.

The deal with Leighton is subject to shareholder approval at a meeting to be held in February.

Leighton's chief executive Hamish Tyrwhitt said the deal would have no impact on the company's net profit for fiscal 2012 and was expected to be earnings accretive in 2013.

"With the consent of Macmahon clients through the novation of contracts, the bulk of the projects will transition to our John Holland business, bringing volume and scale, and expanding their presence in the Northern Territory," he said.

Macmahon's shares were placed in a trading halt on Monday, ahead of an announcement about its plans.